Investing

As SXSW Ends, Austin Ventures Goes to Work

At the South by Southwest Interactive conference, which ran March 9-13 in Austin, Tex., deciding among the panoply of parties, panels, and media stunts could be daunting. But for hometown entrepreneurs, there was one event not to be missed: the Austin Ventures party, a Sunday morning smorgasbord of tacos, Bloody Marys, and live music. It was a chance to meet the most prominent venture capitalists in town. “They’re the big players,” says Martin Floreani, an Austinite who attended the party in hopes of raising money for his sports media startup, Flocasts.

Austin Ventures, a 33-year-old firm with $3.9 billion under management, doesn’t have the name-brand recognition of some of its Silicon Valley venture capital competitors, such as Sequoia Capital and Kleiner Perkins Caufield & Byers. What it does have is a laser focus on the Austin tech scene, which over the past decade has turned into an innovation hub. Austin came in second to San Francisco in a recent ranking of startup hot spots based on median annual pay and number of jobs available, according to PayScale. The city is home to more than 3,800 technology companies and 91,000 tech workers.

Austin got a big boost over the past nine months when two local startups went public. HomeAway (AWAY), a global conglomerate of websites that lets people rent out their vacation homes, is now valued at $2.1 billion. Bazaarvoice (BV), which makes software that helps more than 30 percent of the world’s biggest brands understand how they’re perceived by consumers online, is worth about $1 billion. Austin Ventures owns a combined $700 million stake in the two companies. Other recent successes include LifeSize Communications, a provider of videoconferencing systems acquired by Logitech (LOGI) in 2009, and Jigsaw, a software company bought by Salesforce.com (CRM) a year later.

AV’s strategy is to stick with repeat entrepreneurs. John Thornton, a general partner at AV, has produced a chart of all the connections between the firm’s portfolio companies which he calls the “gnarly” family tree. “The uglier and harder it gets to follow that chart, the better we like it,” says Thornton, who joined the firm 21 years ago. “To the extent that we have a home-field advantage, that’s it.”

Yet that’s a disadvantage for the firm in Silicon Valley, where entrepreneurs need only take a short hike down Menlo Park’s Sand Hill Road to meet with four or five of the world’s most prominent venture capital firms. AV isn’t among the early investors in Facebook, Zynga, LinkedIn, or other high-profile Valley companies. To help its chances, AV has invested in Floodgate, an early-stage venture firm in Palo Alto run by former Austin entrepreneur Mike Maples Jr.

AV hopes its next success is WhaleShark Media, a collection of Internet coupon sites that offer deals at online retailers, such as 20 percent off lawn and garden gear at Target.com (TGT). WhaleShark was valued at as much as $1 billion following a $150 million financing round in November, and AV is its biggest investor. The company may be in a position to go public next year, says founder Cotter Cunningham. He’s already thinking about another branch for AV’s family tree. “I tease those guys pretty often that I’m 49. This is hardly my last startup,” Cunningham says. “I keep saying, ‘Keep the money warm, because I’ll be back.’ ”